Case Study 2 - Internal Control

Dear President of LJB Company,(1) If the LJB Company should decide to become a publicly traded company, a few internal controls should be implemented to comply with the Sarbanes-Oxley Act (SOX). * Management will need to provide periodic quarterly reports to evaluate the effectiveness and reliability of LJB’s internal controls over financial reporting procedures. * Management should certify the accuracy and fairness of presentation of their financial statements. * Independent auditor(s) outside of LJB will need to attest to management’s assessment of said internal controls. Additionally, non-audit services between these two parties (LJB and said independent auditor) are prohibited. (2) There are a few internal control measures that LJB already has in effect and are better for it: the use of pre-numbered invoices by the accountant and your (the President’s) involvement in the approval and hiring process of new employees. I also recommend the purchase of the indelible ink machine as per the accountant’s request. As this applies to the Internal Control Principle of Physical Control, future check fraud will be more difficult to be accomplished. (3) There are several internal control weaknesses that I assess LJB currently has. Following each weakness I list below is a recommendation from myself to rectify these internal control weaknesses. * One is risk is the accountant who serves as Treasurer and Controller. Although I understand this is to streamline many processes, it possesses a risk where an opportunity is created for this employee to commit fraud. This also violates the Segregation of Duties Principle of Internal Control Principles. I recommend that these two responsibilities be segregated 2 different employees. * When the accountant in charge of payroll leaves employees’ checks in his office unsupervised and unsecured, it presents an opportunity for theft. This violates the...

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...504 |
MANAGERIAL USE ANLYSIS |
CASESTUDY2INTERNALCONTROL |
12/1/2012 |
CaseStudy2InternalControl
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A requirement is important to know that all publicly traded U.S. corporations are required to maintain an adequate system of internalcontrols and procedures for financial reporting in accordance with the Sarbanes-Oxley Act Section 404. It is the responsibility of your executives to ensure there are dependable and effective controls in place, and auditors from outside the company must prove to the adequacy of the internalcontrol systems as well. This information must be recorded in an internalcontrol report each fiscal year as a part of the annual Exchange Act report. The intention of this act is to reduce the possibilities of corporate fraud by mandating specific procedures for financial reporting.
It is recommended that your company adopt the framework defined by the Committee of Sponsoring Organizations of the Tread way Commission (COSO) in order to comply with the SOX Act. The first of five components of this framework is to create the control environment. This refers to the implication that management places on a company’s risk management and accountability processes and how they foster an...

...system of internalcontrols. Corporate executives and boards of directors must ensure that these controls are both reliable and effective.
Public Offering
The transformation of going from a private to public requires some extensive planning and preparation. It is recommended that LJB, being a relatively small sized company, should reevaluate the costs versus the benefits of becoming a publicly traded company. If the decision is made to issue stock, it would be wise to first complete an internalcontrol report as well as answer the following questions:
(1) How many shares should be authorized for sale?
(2) How should the stock be issued?
(3) What initial value should be assigned to the stock?
The content of this internalcontrol report is based on the related methods and measures adopted within an organization to safeguard its assets, enhance the reliability of its accounting records, increase efficiency of operations, and ensure compliance with laws and regulations. The major independent components of the internalcontrol system should always include:
• Control environment
• Risk assessment
• Control activities
• Information and communication
• Monitoring
It’s been noted that not all the components of an effective internalcontrol system are present within the...

...To: President of LBJ
Re: InternalControls
My Recommendation
Impact of going public
Public companies, as the result of the passing of Sarbanes Oxley Act of 2002, are necessary to document their controls, assess the documented controls and have their external auditors examine their testing of controls and note down a report about the efficiency of controls surrounding financial reporting. As a result, there will be supplementary work on designing, testing and auditing of controls if you come to a decision to go public.
High-quality practices
Having long-term employees is a real positive feature and I acclaim you for retaining talent. The use of pre-numbered checks, pre-numbered invoices, locking up new checks, having two managers support new hires, and carrying out bank reconciliation are greatest practices and I support you to stick with these procedures.
Weak practices and recommendations
There are a number of practices, on the other hand, that make you defenseless to errors, mutually planned and unplanned.
Segregation of duties
Employees that manage cash ought to not be involved in the bank reconciliation or invoices. Employees in charge for purchasing should not have any payment or reconciliation duties. By segregating duties, there is more than one person implicated in the sales and purchasing cycle as a result one person cannot carry out a fake...

...LJB Company’s InternalControl
Recommendation Report
February 2012
Prepared for:
LJB Company
President
Finance Department
Prepared by: Cauretta Bell
Recommendation Report 2012
It is my immense pleasure to report and evaluate the findings of the internalcontrol procedures to the President of LJB Company regarding recommended changes for the organization to utilize internalcontrol requirements. We will provide useful recommendation so that LJB Company will be fully prepared to go public in the near future. Being completely open to our recommendation, the President of LJB Company can expect the organization proficiency level of internalcontrol will secure assets, improve the trustworthiness of the accounting records, amplify efficiency of operations, and guarantee compliance with laws and regulations. In order to accomplish this success, LJB would need to apply five primary components that are consistent of control environment, risk assessment, control activities, monitoring, information and communication. The internalcontrol activities establish simple principles such as: segregation of duties, establishment of responsibility, physical controls, human resource controls, independent internal verification, and documentation procedures. The activities...

...CaseStudy2 – InternalControl
The following are the internalcontrol requirements a company who wants to go public needs to be put into place.
INTERNALCONTROL REQUIREMENTS
Management’s Assessment
Section 404(a) of the Act and the related rules adopted by the SEC require management to assess the effectiveness of the company’s internalcontrol over financial reporting as of the end of the company’s most recent fiscal year, and to state in the company’s annual report whether the company’s internalcontrol over financial reporting is effective. The SEC rules implementing Section 404 of the Act include the following within the areas that management must consider in its assessment:
1. Controls over initiating, recording, processing and reconciling account balances, classes of transactions and disclosure, and related assertions included in the financial statements;
2. Controls related to the initiation and processing of non-routine and non-systematic transactions;
3. Controls related to the selection and application of appropriate accounting policies; and
4. Controls related to the prevention, identification and detection of fraud.
The rules require that the assessment be based on procedures sufficient to evaluate the...

...﻿CaseStudy2 – InternalControl
1. Inform the President of any new internalcontrol requirements if the company decides to go public.
As per the accident that happened in the company about some employees was viewing pornography on company computer and he had a hard time to get his employees admitted that they were the one who doing it. He should use limit access by individual passwords for each person to log in the computer systems. To make sure that which person was log on in the computer and do bad thing during that period.
2. Advise the President of what the company is doing right (they are doing some things well) and also recommend to the President whether or not they should buy the indelible ink machine. When your advice the President, please be sure to reference the applicable internalcontrol principle that applies.
From the passage that the accountant has recently started using prenumbered invoices following by the principle of internet control activities.
Please find the Documentation Procedures passage below.
From the passage, the president wants to buy an indelible ink machine to print their checks. In my opinion, I would like to recommend that he should buy an indelible ink machine following by the principle of internalcontrol activities.
Please find the Physical...

...CaseStudy2 – InternalControl
TO: LJB Company President
FROM: Accounting Firm
DATE: August 12, 2012
SUBJECT: InternalControl
It is with great pleasure that we can provide you information and advisement on internalcontrols that will assist LJB Company with going public. We understand that you have communicated your concerns and expect that this report will assist you with deriving conclusions. This report will:
1. Inform you of any new internalcontrol requirements in reference to going public.
2. Advise and make recommendations on what the company is doing right.
3. Advise and make recommendations on what the company is doing wrong.
RECOMMEDATIONS:
1. A key distinction of a company going public over a private company is that the public company must abide by the rules of the Security Exchange Commission. One of the tasks a new public company will undertake is providing the financial details of the entity which will be readily available to the public – thus known as financial reporting. The Committee on Sponsoring Organizations framework is widely regarded as an appropriate and comprehensive basis to document the assessment of internalcontrols over financial reporting. It is important that LJB Company reviews and implement these standards....

...﻿FNSACC50A Implement & Maintain InternalControl Procedures ASSIGNMENT
1. Who is ultimately responsible for the corporate governance of an organisation?
The Board of Directors
2. Who else plays a part in corporate governance?
Shareholders, auditors and other stakeholders.
3. Who are the stakeholders?
A person, group or organisation that has interest or concern in an organisation.
4. List the corporate governance requirements a company needs to adhere to:
The company has an adequate system of internalcontrol in place.
There is equitable treatment of all stakeholders.
Accountability rests with those that manage and control the company.
Shareholders confidence is built because transparency of operations and information
means that investors are better placed to make more informed decisions.
5. What part does the Corporations Act 2001 play in corporate governance?
The Corporations Act 2001 is major legislation that impacts on companies. Through its
Legislation governments require companies to behave responsible and be accountable
As good corporate citizens.
6. What are the objectives of internalcontrols as required by corporate governance requirements?
1 The business is conducted in an orderly and efficient manner
2 Ensure compliance with all financial and operational requirements
3...